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NEW YORK, Jan. 7 (UPI) — Crude prices on the New York Mercantile Exchange beat a hasty retreat Tuesday amid reports that OPEC was set to increase its exports by up to 2 million barrels per day to offset the loss of production caused by a nagging strike in Venezuela.

OPEC was working this week to set up a possible meeting as early as this weekend to discuss raising production quotas, a move that could seriously undermine the sturdy moorings crude prices have enjoyed in the past month during Venezuela's strife and the continuing potential for a war in the Persian Gulf region.

February NYMEX crude tumbled $1.02 Tuesday to $31.08 while February gasoline slipped 4.02 cents to 84.18 cents per gallon, and February heating oil fell 3.91 cents to 84.88 cents per gallon. Crude had slipped 98 cents on Monday after OPEC officials began publicly discussing putting more oil on the market.

Some analysts have predicted that the outbreak of a war in Iraq at the same time Venezuela's oil production was seriously curtailed could cause a major spike in crude prices; however, U.S. government analysts noted Tuesday that OPEC had the capability to ramp-up production quickly and by significant amounts.

"According to fourth-quarter 2002 estimates, the world (excluding Iraq) holds as much as 4.8 million barrels per day of excess oil production capacity that could be brought online," the Energy Information Administration said. "Nearly all of this 'excess capacity' is located in OPEC member countries."

OPEC increased its quota by 1.3 million barrels to 23 million barrels per day beginning Jan. 1, and another boost could leave OPEC vulnerable to being caught on the proverbial limb in the form of a saturated market if the political situation in Venezuela is sorted out and the state oil company, PDVSA, resumes full production

An increase in OPEC production would not be an arbitrary decision on the part of the cartel. OPEC has a mechanism in place that is based on an average price of $22-$28 per barrel for a "basket" of various crude varieties produced by member nations.

If the price slips below the $22-$28 price band for 20 consecutive days, production is reduced accordingly. If the price goes above the band, production is increased. OPEC said its basket price topped $30 per barrel last week and was $30.71 on Monday.